Credit and business information specialist, Equifax, is reporting a significant rise in business failures across all sectors.

This adds to all the painful predictions that the UK's economy appears to be on the cusp of a recession. It is expected to affect small businesses in particular.

Total failures in July 2008 rose by 29% compared to the same month last year. Equifax consequently urges companies to batten down the hatches and put in place tactics to weather the storm.

The transport and communication sector was the worst hit, seeing a substantial 59 per cent year on year increase in failures in July. The construction sector also saw a high year on year increase in failures at 57 per cent.

Nic Beishon, Head of Commercial Solutions for Equifax, explains, “With the price of fuel spiralling ever higher many businesses are starting to feel the pinch as overheads continue to soar.”

The failures in the construction sector provide “clear signs that the property downturn is having the expected impact on the industry,” says Beishon.

The manufacturing sector saw a 39% rise in July 2008 compared to July 2007 according to the report.

This comes as “no great shock” following the recent Office for National Statistics (ONS) figures on manufacturing output which decreased by 0.8% in the second quarter of 2008 compared with the first quarter.

The high street spending slowdown contributed to a 33% rise in business failures within the retail sector.

Low consumer confidence and less spending probably contributed to this rise and in the wholesale sector, failures rose by 26% year on year for the month of July.  

The service sector saw the smallest increase year on year, at just 12%.

Business Debtline also recently warned that it is expecting record numbers of enquiries for debt advice from small businesses and the self-employed in particular, who face the prospect of trading through a recession for the first time, reinforcing Equifax’s findings.

Equifax outlines some relatively simple and low-cost actions that small businesses can take to protect themselves as much as possible.

Beishon offers some advice, “The credit squeeze and pressure from rising inflation is hitting small businesses hard and there is a temptation not to spend money on checks of new customers and suppliers.”  

“But the fact is that rigorous credit checks, supported by ongoing monitoring of customers’ and suppliers’ financial status, are key to help businesses of all sizes protect their cash flow and avoid bad debt,” he adds.

Equifax July 2008 UK Business Failures Report
July 2007 vs July 2008